Author Topic: EEVblog 1430 - Rent vs Buy - My $400,000 MISTAKE!  (Read 4668 times)

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Offline thm_w

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EEVblog 1430 - Rent vs Buy - My $400,000 MISTAKE!
« on: October 18, 2021, 02:46:50 am »
Dave goes through the real calculations of what it ultimately cost him to rent an office vs buying an office back on 2015.
And on the importance of being your own bank, compounding interest reduction, paying off your loan early, and offset accounts for cash flow benefits.

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Offline golden_labels

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Re: EEVblog 1430 - Rent vs Buy - My $400,000 MISTAKE!
« Reply #1 on: October 18, 2021, 03:19:53 am »
The video has a “it was a mistake” vibe, but that’s not right. That’s a nice story of how things went worse than they could, but the decision may only be judged from 2015’s perspective. You could as well put a third option there: investing $50k in a startup that increased its value 50 times since 2015 and claim you lost millions! No, you didn’t, because in 2015 you had no information you have now. Unless in 2015 you already considered the need to have a larger office and knew the property value will increase by more than 100%. ;)


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Offline thm_w

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Re: EEVblog 1430 - Rent vs Buy - My $400,000 MISTAKE!
« Reply #2 on: October 18, 2021, 09:16:26 pm »
Its a way to one-up Rossman and show some interesting numbers.

Most companies I've worked at have been leasing so long they've probably paid the cost of the place already. But good luck pushing that idea to investors. Companies don't like to invest in things up front, they prefer to have monthly expenses.
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Re: EEVblog 1430 - Rent vs Buy - My $400,000 MISTAKE!
« Reply #3 on: October 19, 2021, 12:10:22 am »
This video could really do with a 1 minute executive summary  >:D
There are small lies, big lies and then there is what is on the screen of your oscilloscope.
 
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Offline Monkeh

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Re: EEVblog 1430 - Rent vs Buy - My $400,000 MISTAKE!
« Reply #4 on: October 19, 2021, 04:10:50 am »
The video has a “it was a mistake” vibe, but that’s not right. That’s a nice story of how things went worse than they could, but the decision may only be judged from 2015’s perspective. You could as well put a third option there: investing $50k in a startup that increased its value 50 times since 2015 and claim you lost millions! No, you didn’t, because in 2015 you had no information you have now. Unless in 2015 you already considered the need to have a larger office and knew the property value will increase by more than 100%. ;)

On that note, I made a multi-million dollar mistake years ago by dismissing Bitcoin as little more than a curious fad.
 

Offline thm_w

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Re: EEVblog 1430 - Rent vs Buy - My $400,000 MISTAKE!
« Reply #5 on: October 20, 2021, 12:28:39 am »
On that note, I made a multi-million dollar mistake years ago by dismissing Bitcoin as little more than a curious fad.

Its a bit different when you have to choose buy or rent. No one is forced to invest.

This video could really do with a 1 minute executive summary  >:D

TLDR: taking out mortgage and buying a larger office space for $330k would be $30k cheaper over ~10 years than renting, assuming no appreciation. Then the value of space appreciated by 370k on top of that. So a difference of 400k total.



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Offline Lord of nothing

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Re: EEVblog 1430 - Rent vs Buy - My $400,000 MISTAKE!
« Reply #6 on: October 20, 2021, 06:45:09 am »
Dear Mr. Dave
I dont know how the Tax System Down under is but in my Country we can make the loss from the Rent in the Tax Declaration (or what ever the correct Therm is for...) viable. That mean rent have the benefit to have a constant loss and lower income on the other end Buy something mean the loss can be declared only a short time. So when your income are "low" that mean rent could be way cheaper when it come to Tax.
I dont watch your Video fully but does it also play a Roll in your Spreadsheet?
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Online nctnico

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Re: EEVblog 1430 - Rent vs Buy - My $400,000 MISTAKE!
« Reply #7 on: October 20, 2021, 02:26:50 pm »
This video could really do with a 1 minute executive summary  >:D

TLDR: taking out mortgage and buying a larger office space for $330k would be $30k cheaper over ~10 years than renting, assuming no appreciation. Then the value of space appreciated by 370k on top of that. So a difference of 400k total.

But the property could have devaluated just as easely. It is like buying some random stock and be surprised it got more valuable over time. One of my clients is in a top-tier business area. Or better put, was. Many companies are leaving due to more working at home and poor infrastructure connectivity (getting there by car is a major PITA). Guess what that will do with the value. New development in that area is mainly homes nowadays.

On top of that, there is something like inflation and Dave would need space to run his business from. There is no easy way to get the money out of the property. Getting a $300k line of credit to invest in making & selling products on a large scale is likely to result in a larger amount of profit.
« Last Edit: October 20, 2021, 02:35:01 pm by nctnico »
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Offline floobydust

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Re: EEVblog 1430 - Rent vs Buy - My $400,000 MISTAKE!
« Reply #8 on: October 20, 2021, 09:04:38 pm »
I don't see property taxes in the comparison. The landlord pays them, not the renter, at least here in NA. Building maintenance as well.
 

Offline thm_w

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Re: EEVblog 1430 - Rent vs Buy - My $400,000 MISTAKE!
« Reply #9 on: October 20, 2021, 09:35:39 pm »
But the property could have devaluated just as easely. It is like buying some random stock and be surprised it got more valuable over time. One of my clients is in a top-tier business area. Or better put, was. Many companies are leaving due to more working at home and poor infrastructure connectivity (getting there by car is a major PITA). Guess what that will do with the value. New development in that area is mainly homes nowadays.

On top of that, there is something like inflation and Dave would need space to run his business from. There is no easy way to get the money out of the property. Getting a $300k line of credit to invest in making & selling products on a large scale is likely to result in a larger amount of profit.

Sure, although I wouldn't say just as easily, space in the Sydney area is limited.
Yeah renting and getting a $300k line of credit could have been another option. IMO riskier than the proven status quo, product could be a flop.


I don't see property taxes in the comparison. The landlord pays them, not the renter, at least here in NA. Building maintenance as well.

"outgoings"
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Online nctnico

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Re: EEVblog 1430 - Rent vs Buy - My $400,000 MISTAKE!
« Reply #10 on: October 21, 2021, 10:12:39 pm »
But the property could have devaluated just as easely. It is like buying some random stock and be surprised it got more valuable over time. One of my clients is in a top-tier business area. Or better put, was. Many companies are leaving due to more working at home and poor infrastructure connectivity (getting there by car is a major PITA). Guess what that will do with the value. New development in that area is mainly homes nowadays.

On top of that, there is something like inflation and Dave would need space to run his business from. There is no easy way to get the money out of the property. Getting a $300k line of credit to invest in making & selling products on a large scale is likely to result in a larger amount of profit.

Sure, although I wouldn't say just as easily, space in the Sydney area is limited.
Yeah renting and getting a $300k line of credit could have been another option. IMO riskier than the proven status quo, product could be a flop.
Only a fool would bet on a single product / single client.
There are small lies, big lies and then there is what is on the screen of your oscilloscope.
 

Offline EEVblog

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Re: EEVblog 1430 - Rent vs Buy - My $400,000 MISTAKE!
« Reply #11 on: October 22, 2021, 03:50:51 am »
The video has a “it was a mistake” vibe, but that’s not right. That’s a nice story of how things went worse than they could, but the decision may only be judged from 2015’s perspective. You could as well put a third option there: investing $50k in a startup that increased its value 50 times since 2015 and claim you lost millions! No, you didn’t, because in 2015 you had no information you have now. Unless in 2015 you already considered the need to have a larger office and knew the property value will increase by more than 100%. ;)

I knew I needed more space, or at the very least more space would be a very god thing to have for future options, but I was a being a tight arse.
 

Offline EEVblog

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Re: EEVblog 1430 - Rent vs Buy - My $400,000 MISTAKE!
« Reply #12 on: October 22, 2021, 03:53:30 am »
Dear Mr. Dave
I dont know how the Tax System Down under is but in my Country we can make the loss from the Rent in the Tax Declaration (or what ever the correct Therm is for...) viable. That mean rent have the benefit to have a constant loss and lower income on the other end Buy something mean the loss can be declared only a short time. So when your income are "low" that mean rent could be way cheaper when it come to Tax.
I dont watch your Video fully but does it also play a Roll in your Spreadsheet?

I did not include tax issues because it all comes out the same in the wash.
Both rent and interest payments are business expenses.
 

Offline EEVblog

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Re: EEVblog 1430 - Rent vs Buy - My $400,000 MISTAKE!
« Reply #13 on: October 22, 2021, 03:54:58 am »
There is no easy way to get the money out of the property.

Gette a line of credit loan on a property is pretty easy.
 

Offline EEVblog

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Re: EEVblog 1430 - Rent vs Buy - My $400,000 MISTAKE!
« Reply #14 on: October 22, 2021, 04:12:27 am »
I don't see property taxes in the comparison. The landlord pays them, not the renter, at least here in NA. Building maintenance as well.

"outgoings"

Correct.
There are no "property taxes" here, just "council rates" which aren't much. And if you have a commercial building like this one your major cost are the building strata fees to maintain the building.
And all these "outgoings" are paid by the tenant. That's one of the appeals of commercial realestate for investments, it costs you almost nothing assuming it's rented. Just the usual maintenance like say Aircon.
« Last Edit: October 22, 2021, 04:14:36 am by EEVblog »
 

Offline Johnny10

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Re: EEVblog 1430 - Rent vs Buy - My $400,000 MISTAKE!
« Reply #15 on: October 22, 2021, 04:49:49 am »
It always makes more sense to own appreciable assets.



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Offline james_s

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Re: EEVblog 1430 - Rent vs Buy - My $400,000 MISTAKE!
« Reply #16 on: October 22, 2021, 06:05:42 am »
But the property could have devaluated just as easely. It is like buying some random stock and be surprised it got more valuable over time. One of my clients is in a top-tier business area. Or better put, was. Many companies are leaving due to more working at home and poor infrastructure connectivity (getting there by car is a major PITA). Guess what that will do with the value. New development in that area is mainly homes nowadays.

Where does that ever happen? Property values occasionally have a bubble that bursts but over the long term they have always gone up, at least in my country. Even in the 2008 recession and housing bust my house never dropped down to what I paid for it in 2005. Today it is worth 3 times what I paid, had I bought in 2007 I would have been underwater for a few years but not anymore. If you look at it in the span of say 10+ years buying is nearly always a far better investment. Even in the short term it's usually a better deal, if you buy a place and it loses $30k in value by the time you sell it just a year later, you are still doing ok considering you would have spent something close to that $30k renting it for a year, and when you rent you get absolutely no return, that money pays someone else's mortgage.
 

Offline ali_asadzadeh

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Re: EEVblog 1430 - Rent vs Buy - My $400,000 MISTAKE!
« Reply #17 on: October 22, 2021, 08:49:14 am »
Dave I have bought a 2500 square meter land back in 2019 and it has increased it's value around 500% since that Time! and I know it's Crazy.  I wanted to build my factory there. If I make progress I will post in this forum.

So How did I do that?
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Offline EEVblog

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Re: EEVblog 1430 - Rent vs Buy - My $400,000 MISTAKE!
« Reply #18 on: October 22, 2021, 10:13:51 am »
Dave I have bought a 2500 square meter land back in 2019 and it has increased it's value around 500% since that Time!

Land banking on it's own is generally not a great idea unless you have the means and have other income producing assets. It brings in no income, cost you rates and interest every year, and you usually can't get a line of credit on it. Not to mention that banks (at least here) generally will not give you a loan for just land with out a council approved house plan.
« Last Edit: October 22, 2021, 10:18:57 am by EEVblog »
 

Offline EEVblog

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Re: EEVblog 1430 - Rent vs Buy - My $400,000 MISTAKE!
« Reply #19 on: October 22, 2021, 10:21:07 am »
But the property could have devaluated just as easely. It is like buying some random stock and be surprised it got more valuable over time. One of my clients is in a top-tier business area. Or better put, was. Many companies are leaving due to more working at home and poor infrastructure connectivity (getting there by car is a major PITA). Guess what that will do with the value.

I was expecting some sort of drop in commercial property due to covid and the new work from home thing, but I haven't seen it yet. At least not on the smaller to mid size stuff in my business park.
 

Offline Pinkus

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Re: EEVblog 1430 - Rent vs Buy - My $400,000 MISTAKE!
« Reply #20 on: October 22, 2021, 11:51:48 am »
probably a similar phenomenon that Lois Rossmann also reported on rents in New York. There, the premises are more likely to remain empty for years than the rent is lowered.
 

Online nctnico

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Re: EEVblog 1430 - Rent vs Buy - My $400,000 MISTAKE!
« Reply #21 on: October 22, 2021, 05:02:36 pm »
But the property could have devaluated just as easely. It is like buying some random stock and be surprised it got more valuable over time. One of my clients is in a top-tier business area. Or better put, was. Many companies are leaving due to more working at home and poor infrastructure connectivity (getting there by car is a major PITA). Guess what that will do with the value. New development in that area is mainly homes nowadays.

Where does that ever happen? Property values occasionally have a bubble that bursts but over the long term they have always gone up, at least in my country. Even in the 2008 recession and housing bust my house never dropped down to what I paid for it in 2005. Today it is worth 3 times what I paid, had I bought in 2007 I would have been underwater for a few years but not anymore. If you look at it in the span of say 10+ years buying is nearly always a far better investment. Even in the short term it's usually a better deal, if you buy a place and it loses $30k in value by the time you sell it just a year later, you are still doing ok considering you would have spent something close to that $30k renting it for a year, and when you rent you get absolutely no return, that money pays someone else's mortgage.
This thread is not about a home but an office! An office is used to generate money. So the question is whether it is better to tie your money into a building or use the money to get products in & out. Unless the business isn't viable, the latter is way more profitable. Look at Donald Trump versus Warren Buffet. The first -mostly invested in buildings- doubled his money over the span of 30 years (the stock market performed much better!). Mr Buffet invested and made his fortune increase 50 times in the same time frame. Both numbers corrected for inflation BTW.
« Last Edit: October 22, 2021, 05:04:22 pm by nctnico »
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Offline CatalinaWOW

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Re: EEVblog 1430 - Rent vs Buy - My $400,000 MISTAKE!
« Reply #22 on: October 22, 2021, 05:44:49 pm »
Hindsight can always find such mistakes.  I can find numerous over my lifetime.  Some I just wasn't aware of, like buying Berkshire Hathaway 40 years ago.  Others I knew the opportunity was there and didn't pull the trigger.  Things like when the assets (property/material etc.) of a company were conservatively worth more than 4X the market value of the stock.  I bought that one, but didn't go all in on it.  Did very well on that, but with resources easily available to me could have done five or ten times better.

I find that worrying about how much more you could have had is pointless.  If you have enough to live don't worry about it.


Over our lifetimes buying has been a better choice than renting over much of the world averaged over several year time frames.  But it hasn't always been that way, and some lines of reasoning suggest that it won't be over the next 50 years. 

One advantage of renting/leasing is flexibility.  Many have been hurt because they had to make a change during one of the brief drops in property values.  Those not locked into ownership that can't be turned into value in any particular short interval don't have that problem. 
 

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Re: EEVblog 1430 - Rent vs Buy - My $400,000 MISTAKE!
« Reply #23 on: October 22, 2021, 06:32:29 pm »
Hindsight can always find such mistakes. 
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Quote
Over our lifetimes buying has been a better choice than renting over much of the world averaged over several year time frames.  But it hasn't always been that way, and some lines of reasoning suggest that it won't be over the next 50 years. 
That is true. I plan to live in my (bought) home for a very long time. Maybe the money it is worth can do me some good when I need to go into a nursing home or so. But it could end up being inherited by my kids. Another potential problem is that it sits on the bottom of what was a sea less than a century ago. It is entirely possible that rising sea levels make that the area can no longer be kept dry in several decades. It probably won't affect me physically but it could seriously drop the value. The only advantage of buying a home is that once it is paid, my outgoing expenses will drop significantly. To me it seems that very long term buying a home will be cheaper compared to renting assuming the home is not lost at some point.
« Last Edit: October 22, 2021, 06:41:10 pm by nctnico »
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Offline james_s

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Re: EEVblog 1430 - Rent vs Buy - My $400,000 MISTAKE!
« Reply #24 on: October 22, 2021, 07:33:19 pm »
I think it's highly unlikely that my choice to buy will end up not looking like a good decision. I'm about 2 years from having it paid in full and already rent in the area is far higher than my mortgage payment. If my house suddenly dropped 90% in value it stands to reason that other houses in the region will likely drop similarly so I still have an asset worth a relatively constant percentage of the price of whatever house I move to. Since I always need a place to live I don't view the value of my house as wealth, it is insurance on always having a place to live.

If something really blew up and I couldn't afford to live in my house, I could always rent it out, either divide it up and rent out part of it to someone else, or live with a friend, relative or even out of my car for the duration of the difficulty while retaining ownership of the house.
« Last Edit: October 22, 2021, 07:36:32 pm by james_s »
 


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